“Now what’s going to happen here is because there is no competition, because this is a government monopoly and because they are spending so much money so they’re overcapitalising it, inevitably prices are going to be high.” — Malcolm Turnbull, 1 February 2012. [1]

But is that right? Some NBN supporters argue my comment is unfair and inaccurate. They reject any suggestion that the NBN will result in broadband costs that are higher than they would have been in its absence.

We need to get real about this. When you are committing tens of billions of dollars to replacing the entire existing infrastructure of a vital industry, you cannot be sentimental or self-deluding. There are no fairies at the bottom of the NBN garden to suspend the laws of economics.

By any measure the NBN is a massive investment. The Government says the direct capital cost of the network will be $37 billion and the peak funding required by NBN Co $41 billion. Most industry experts expect the eventual cost to be significantly higher, and some estimates exceed $60 billion.

It is difficult to demur: Let’s face it, what was the last Government infrastructure finished on time and on budget? Most projects that run over budget involve types of infrastructure where the likely costs, economic drivers and probable operational complications are well understood because of previous experience – the likes of roads, dams, tunnels and major buildings. But the NBN is entirely new in the Australian context; nobody has deployed a large scale fibre to the premises network in established areas. And insofar as there is one relevant point of comparison in South Brisbane, where Telstra is currently building an FTTP network, all publicly available information indicates that it costs a lot more and takes a lot longer than projected.

The NBN is also going to be a monopoly, given other fixed-line infrastructure will either be decommissioned or contractually prohibited from competing. So the only competition for carriage of broadband services will be provided by wireless networks, which in some cases will be a substitute product, but in many will not (as Senator Conroy is so fond of pointing out). The NBN in fixed line terms will be the only game in town.

Every enterprise wants to get a good return (ideally a high return) on its invested capital. If it cannot get a reasonable return then it won’t be able to meet its obligations to its lenders or pay dividends to its shareholders. However sometimes people do over-invest – whether it is the toll road that overestimates traffic volumes or the restaurant with an excessively flash fit out.

And if they are operating in a competitive market (if, for instance, motorists can take another route or diners choose another restaurant) they will find that the return they can earn is less than the cost of the capital they have spent, and have to write down the value of that investment. You have to meet the market price that is determined by your competition.

However where a business is a monopoly it is able to exploit its market power and charge much higher prices.

Of course, doing this is an integral part of the NBN business plan. Everywhere else in the world (and in Australia to date) HFC networks are used for high-speed broadband, and usually for voice traffic as well. In most markets the HFC networks belong to cable TV companies who compete fiercely with telco services delivered over fibre, copper or a combination of both.

However in Australia, Telstra and Optus are being paid billions NOT to use their HFC networks for broadband or voice precisely so they cannot compete with the NBN. Because the HFC networks were built a long time ago in fairly densely settled areas, Telstra and Optus would be able to offer comparable services and undercut the prices NBN wants to charge for its brand new FTTP network – resulting in NBN having to cut its rates to meet the market. So in order to prevent that happening, billions of dollars of taxes have gone to pay off Telstra and Optus not to compete.

All monopolies will attempt to charge excessive prices (extract economic rent) and so typically they will be the subject of regulation – as in the case of our water, gas and electricity providers. And that will be the case, to some degree, with the NBN which is generously proposing that it will not seek to earn more than the Government’s chosen benchmark of a 7 per cent return on its invested capital.

However, this begs the question as to whether the level of capital that is being invested is appropriate. In a competitive market a business cannot maintain high prices because it wants to get a particular return on its capital. Its customers will say “that’s your problem” and move onto a cheaper service or product.

This issue of the level of invested capital is a vexed one with regulated utilities. Many people, including Rod Sims (formerly head of IPART in NSW and now chairman of the ACCC) have argued that electricity distributors were encouraged to overinvest in their transmission and distribution networks because they were entitled to charge whatever prices were needed to deliver the return on their investment allowed by regulators – given that regulated return was higher than their cost of borrowings, it gave them an incentive to invest as heavily as they could. Regulators’ ability to declare particular investments as “unreasonable” were usually very limited – and according to Sims, this overinvestment has been the major factor behind the rapid growth in electricity prices. [2]

The Australian Energy Regulator Chairman, Andrew Reeves, recently warned against overinvestment or ‘gold plating’, saying it has led to sharp price increases:

“NSW and Queensland are getting more infrastructure than we think they need and we are required to approve price increases to pay for it. [3]

So let us re-examine the logic. A monopoly will always have the ability to charge higher prices than a business which is operating in a competitive market. An answer to that is to regulate the monopoly. But if the regulator simply requires that the prices charged by the monopoly only be constrained by a maximum allowed return on capital, that will still most likely result in higher prices – especially if the capital invested is far greater than is needed to deliver the services or products consumers actually want at a given point in time.

And the more desperate a Government is to prevent its supposedly ‘commercial’ investment from turning up as red ink on the budget, the more certain you can be that it will do everything in its power to recoup money from consumers and keep ROI up.

When the NBN Co talks about ‘flexibility’ in future pricing in documents submitted as part of its Special Access Undertaking, there should be no doubt what they are really talking about: sacrificing affordability. Analyst Ian Martin, for one, has noted that for the NBN business case to be viable, average wholesale revenue per customer will have to increase by 34 per cent from current levels.[4]

At the simplest level there is simply more capital earning a return. In its latest review of Telstra’s access charges, the ACCC valued the current Telstra network at just over $17 billion.[5] The NBN’s direct network capital cost is $35 billion in 2010 dollars or $41 billion in real dollars. Its peak funding requirement is higher taking into account the $11 billion (in after-tax 2010 dollars) paid to Telstra to shut down its network and migrate customers and $800 million paid to Optus for similar commitments. Whether these figures are counted as operational expenditure or capital expenditure is irrelevant from a customer’s point of view – any losses they lead to will be counted as recoverable capital, and thus contribute to the eventual level of charges for use of the network.

It would be wrong to assume that any prices so far offered by the NBN Co are sustainable. In its SAU lodged with the ACCC, the NBN Co included a consultant report conducted by Synergies Economic Consulting (available online here) which states:

“NBN Co has set its initial prices to ‘meet the market’ as a means of ensuring the smooth migration of end user connections from legacy networks to the NBN and to also meet the Australian’s Government’s objectives of setting wholesale prices to achieve the “broadband take up targets agreed by Government through the NBN Co Corporate Plan and Business Case”, again as set out in the Statement of Expectations”. (p.8)

As the consultants note, the low starting base for wholesale prices is an argument for granting NBN Co ‘pricing flexibility’ to recoup its costs at a later date: “the risks of having to price to ‘meet the market’ in accordance with government expectations, are best managed by providing NBN Co with a degree of pricing flexibility;” (p.9)

Until now, the deregulated Australian telecommunications market has typically led to falling nominal and real prices for most services. The nominal retail price of ADSL broadband fell by 69 per cent between 2005 and 2010, according to figures compiled by the OECD [6]. Between 1997-98 and 2008-09 inflation-adjusted prices fell 34 per cent for fixed-line telephone services and 49 per cent for mobile services, according to the ACCC. [7]

Compare that with what we know about the NBN’s plans so far. In terms of access, NBN Co has applied to the regulator for permission to raise nominal prices by 50 per cent of the rate of inflation, per year [8]. But note this restriction only applies to access – unlike current wholesale pricing, NBN Co will also be charging usage fees (via its CVC).

NBN also has made no commitments about its pricing of more sophisticated services such as multicast video. And in any case, if the NBN gets its way, the ACCC would have its power to enforce any price commitments offered in the Special Access Undertaking overridden by separate Wholesale Broadband Agreements (WBAs) NBN Co signs with individual retailers.

With barely 4000 users connected to the NBN after four years of Labor Government, NBN Co yet to report that it has earned revenue from selling broadband services, and completion of the rollout a decade away at best, claims and counterclaims about NBN pricing are at present entirely in the realm of theory. That is as true of the rate cards announced by various ISPs as any other indicator – we all know those rates can change.

But if anyone really believes all of the above points to NBN prices for broadband below where they would have been without it, I know someone who could sell them a very nice Bridge with views of the Opera House.

129 COMMENTS

Yes, a good answer indeed in terms of economics. however, Malcolm, i am willing to pay more if it means reliable and higher speed than what i get on ADSL2+ today. although it says you can acheive 20 Mbps, i will be lucky to get 5-6 mbps in off-peak time.

Really don’t care about prices if it means reliability. Also, NBN plans include phone line for which we currently pay $49.95 to telstra plan. then add the broadband cost.

so, in real terms, taking into account phone line inclusion and reliable speed, i could be paying half of what i pay today – $98 for telstra bundle for a lousy speed.

I would have supported you becoming PM (still might), but you attitude NBN has made me think twice. hope you change…

If Telstra charges similar prices for use of the copper it currently has when compared to the NBN is there any conceivable way that you can imagine they will upgrade it without increasing prices?

While it may sound like a prudent saving to get private enterprise (Telstra) to build it (with government subsidies) how much will the end user have to pay. I am much less concerned with savings that the gov MAY make, and a lot more concerned with how much I will have to pay Telstra (or their competitor) if they should build a NBN alternate.

In audition, since the NBN will be financed by it’s users how can $0 that be more expensive then billions in Gov subsidies (gifts)?

Malcolm — all of this may be true, but I see many assumptions on your behalf which may simply end up not being true – isn’t that what you complain about to Senator Conroy and NBN Co?

You’ve given us an extremely elaborate answer — but you haven’t answered one very simple thing. If retail NBN pricing is to be so much more expensive than now, why do almost every NBN retail pricing plan released so far by the various RSPs basically correspond to – (and in many cases are LOWER than) – existing ADSL plans from those same RSPs?

Tell us why they – (the businesses actually doing the numbers) – are so wrong, and you are right?

You argument is purely about defeating the government and getting your asses on the other side of the house in 2013, rather than a vision to make Australia competitive for generations to come.

Look at all the waste your estimated 80,000 FTTN cabinets will invite. They are all powered – that costs money. Even if your planned network lasts us 20 years, at least 30% of the DSLAMs in those cabinets – (about 24,000) – will have to be replaced for some reason – (failure, natural disaster, etc).

And when we do move to FTTP, what becomes of that investment. They’ll all be utterly useless.

That’s where your fancy economics words don’t add up. You would commit funds for your plan, all the while knowing that the FTTP plan – (that will cost just as much down the track) – will come anyway.

Stop grandstanding for political points. You’re much smarter than that.

“You’ve given us an extremely elaborate answer — but you haven’t answered one very simple thing. If retail NBN pricing is to be so much more expensive than now, why do almost every NBN retail pricing plan released so far by the various RSPs basically correspond to – (and in many cases are LOWER than) – existing ADSL plans from those same RSPs?

Tell us why they – (the businesses actually doing the numbers) – are so wrong, and you are right?”

Precisely my problem with Turnbull’s argument. I thing there is a great deal of logic to it — but that logic is not being proven in the real life market. And as a business owner myself, I deal in evidence, not logical progression. If the market behaves the way, that is the way it behaves — not the way it is predicted to behave.

Agree. I’ve been a business owner myself, and no business can afford to operate under anything other than reality. The onboarded RSPs are already battling it out on pricing, including those who have no connections other than trial connections currently provisioned.

I thing there is a great deal of logic to it — but that logic is not being proven in the real life market. And as a business owner myself, I deal in evidence, not logical progression. If the market behaves the way, that is the way it behaves — not the way it is predicted to behave.

I’m not quite sure I understand what you mean. so, please correct me if I’m wrong.

as i understand it, the issue under contention is whether current retail NBN pricing is sustainable.

Malcolm has employed economic reasoning to substantiate his claim that current pricing at the wholesale (and by implication, the retail) level is artificially low and is not sustainable.

so, basically, you are saying that:

1) economic reasoning has zero value to you, and will never qualify as useful “evidence” to substantiate claims about the likely trends in NBN pricing;

2) you will only believe that current retail NBN pricing is unsustainable when ISPs actually raise the prices of their NBN packages from current levels.

“NBN Co has lodged a document with the Australian Competition and Consumer Commission called a ‘Special Access Undertaking’. This document, among many other commitments, states that NBN Co will maintain prices for its key wholesale prices at the current levels for five years. In addition, the company will limit future increases to be less than the rate of inflation for 30 years. In short, in real terms, NBN Co’s wholesale prices will remain fairly stable for the next 30 years.”

Sustainable or not, NBN Co will not be rising its prices.

How many times do we need to say this? The current prices are the ones NBN Co is committing to.

Sustainable or not, NBN Co will not be rising its prices… The current prices are the ones NBN Co is committing to.

so, if current NBN pricing turns out to be unsustainable and NBNco ends up not getting the positive cashflow that it currently projects… the Federal Government will just plough more money into bailing out NBNco instead of amending the SAU?

is that what you are arguing?

bear in mind, the proposed NBN wholesale pricing rules (CPI/2) are not set in stone for 30 years.

please refer to pg. 48 of SAU:

Request by NBN Co to ACCC to approve price increases above CPI/2

At any time during the Term (including during the First Period but not in respect of the Price Controlled Offers),
NBN Co may request the approval of the ACCC to increase a Price payable in respect of a Product Component, associated
Product Feature or Ancillary Service more than permitted by the Individual Price Increase Limit (NBN Co Price Adjustment Proposal

also, please refer to pg. 124 of SAU.

there is an explicit provision for a mid-term review of the SAU (at no later than July 2027) when NBNco can submit a new SAU with new wholesale pricing principles.

so, should current NBN pricing prove to be unsustainable, there are plenty of avenues for NBNco to renegotiate the SAU with the full backing of the Federal Government
which happens to be the sole shareholder and underwriter of NBNco’s issued debt.

You are 100% right and wrong at the same time. You can’t state Data levels will increase as being the reason for getting Fibre and then forget that when talking about pricing. Over the last ten years price brackets have been getting increased data limits. Under the NBN they could still comply with their undertaking but use data bracket creep to allow better returns. There is little difference in cost to them for increases in data use but they can use this to ‘increase’ pricing. I believe this is how they are planning on doing it. Also each different service adds additional cost and if people want PSTN services they will pay additional. I would think this would be the same with TV broadcasts. Have the same statements been made about these services? It’s all about getting the 7% return. You only have to do the numbers to realise the amount they need per house to get a return. Hint: It’s not even close to what they are currently charging…

I agree with your comment about the reality of what ISPs are charging for NBN based services, Michael. For example, the closest Optus NBN equivalent to my $79pm Fusion service is only $64.95pm, though with less included calls. What I don’t understand is how Optus can offer services so much cheaper on the NBN than on their own HFC network or using $16pm ULL. The old adage “if it looks too good to be true, it probably is” comes to mind.

Can you or Renai explain how Optus is able to do this? It would help me, and possibly others, understand what’s happening. It might also settle Malcolm Turnbull’s argument about the inevitability of higher prices on the NBN.

It’s just purely a guess, but possibly the upkeep of the network vs users on there. So costs for users is higher? Apparently their network passes millions of homes, but how many of those actually take it up?

If that’s your best prediction Malcolm after how many years in politics? I’m so glad I pay tax and a share of that went to your independently wealthy wage. Bravo (just in case you didn’t realise that was sarcasm) you’ve reinvigorated my interest in Australian politics :(

Being in the telco space is not the same as in the financial space. NBNCo will up prices, they will need to because the project is running way behind schedule and thus most likely not on budget as well. Simple logic and economics.

there’s no price freeze in the sense that if things don’t go according to planned, there is explicit clause in the SAU which allows NBNco to submit a price variation to the ACCC at ANY POINT IN TIME during the term of the SAU.

firstly, if you followed the economic reasoning in Malcolm’s arguments above, that event is extremely likely unless you can suspend the laws of economics and mathematics. however, you are (of course) entitled to ignore and dismiss those arguments and form your own independent opinion.

yes, the ACCC does not have to accept unjustified, exorbitant hikes in NBN charges which generate a return above the commercial WACC on NBNco’s allowed regulatory base. however, the ACCC is extremely likely to allow hikes in prices if NBNco is unable to generate the revenue that it requires to earn the WACC on its capital base at current prices.

The ACCC is not interested in if NBNCo makes a return or not, it is only interested in what effect price changes have on the market. If they believe price hikes adversely effect the market, they will reject the request.

the ACCC’s pricing policies revolve around the key concept of “pricing incentives to encourage efficient infrastructure investment.” by publicly (and wrongly) rejecting FTTN as a cost-efficient investment, the ACCC has already rubberstamped NBNco’s FTTP investment as efficient infrastructure. so, the ACCC will allow NBNco to set charges to recover the WACC return on its massive regulatory asset base associated with building FTTP.

While it’s your publication Renai, and you can do whatever you want with it. Comments like that indicate that you don’t want to deal with people who disagree with you. Obvious hateful speech and spam should be deleted, but if someone expresses their opinion poorly or “plays the man” instead of the ball, surely it’s better to leave that comment to show their lack of argument, and allow others to refute it.

I understand your point but you need to understand both you and Michael Wyres comment so frequently with out any adjustment to the words which have been spoken in the article it’s very hard for anyone to have a REAL discussion. You both always argue with out backing data as a pose to Tumbul and it’s frustrating to all those who don’t take your point that insults from Michael and other NBN fanbois don’t get the same comments from you. You need to start taking a more unbiased approach to this site as it’s not an NBN fanboi site and there are other opinions then yours which should be heard. Otherwise call this the NBN fanboi section and make it obvious rather then making it sound like an unbiased view of the NBN.

” You both always argue with out backing data as a pose to Tumbul and it’s frustrating”
There is a certain degree of common knowledged to be assumed. He was posting something that had been discussed many times on here. You could argue he hadn’t seen it, but before entering into a discussion it’s at least good manners to read some of what others have had to say first.

“… and other NBN fanbois”
And that isn’t insulting?

“it’s not an NBN fanboi site”
And again. So you anyone having a pro NBN stance is a fanboi? No possibility that have objectively worked through the pros and cons?

“this the NBN fanboi section”
Could you stop refering to anyone who makes any form of pro NBN comment a fanboi? Not having the same view of something as you does not equal bias. Arguing using points where facts show the opposite is bias.

Yes, and the whole argument “It’s a monoploly, they will charge more because they can” made up 50% of the article, repeated over and over and over. I thought Tosh was wordy. Very little said with a lot of words.

I was very disappointed there was no attempt to spell out their alternative and provide a life span before it’s capacity is exceeded and FTTH becomes the next step. It seems the Liberals cannot think beyond 2020. Maybe they believe the world ends this year :)

LOL, I guess they have that year in mind for some reason. They better not get too cocky though, or they might take a fall like Kennet. I typically vote Liberal, mainly during the Howard years. He may have been a bit of a fuddy duddy in some opinions, but least they were honest opinions, not manufactured to win elections. I simply can’t at the moment though. Australia has too many years of liberal government and it’s time for a bit of labour just so we can’t get some new infrastructure spending. Though I don’t have a good feeling on the NBN. Not how it is now, how it will be once the Libs get in and sell it off to their corporate overlords.

Sadly, the Liberals (being in opposition) will only think as hard as they need to in order to win. Given that the ALP are deep in the throws of self destruction at the moment, there’s no particular incentive for the opposition to make any effort at all.

I saw it happen in NSW. It’s in the process of happening in Qld. WA are unlikely to forgive the mining tax for a very long time… that doesn’t leave much for the Federal government to pick over. What’s more Wayne Swan has left this vision of a surplus in everyone’s mind, so it’s going to be just a bit hilarious to hear his explanation for why they need to keep borrowing more money.

Global warming is turning into a bit of a dud (put that one off till next decade), even the unions are having second thought about the ALP (just ask Kathy Jackson and the HSU how they feel). Basically the NBN is the last pony in the ALP stable.

Malcolm, take my advice and start encouraging people to sign onto the NBN. You know you will get the blame when it falls in a heap, so think ahead mate. Get the bipartisan gag happening. Seriously though poor quality government and poor quality opposition are two sides of the same coin.

Exactly. When the Libs win the next election there will be a lot of pretend fireworks, the firing of Quigley in a blaze of publicity, and an investigation to inevitably discover a black hole!!! of NBN spending. But the NBN will go ahead unchanged

In case we forget, it’s actually a Coalition – the Libs and Nats.
The Nationals are incredibly keen on the NBN because it’s a giant subsidy to rural and regional Australia. Rabid supporters of the NBN include Tony Windsor, Bob Katter, virtually all the Nationals, Oakeshott, etc.

Country Australia LOVES the NBN. And half of the Libs also like the NBN (ask Scott Morrison, Turnbull’s predecessor what he thinks of it and watch the squirming).
Of course the vehement opposition of the political robots who repeat the Liberal line will then magically disappear.

The unstated major premise in this article is that the NBN is only better if it is cheaper that ADSL2, but the Elephant in the room here is that the NBN is a _VASTLY_SUPERIOR_ network. Even if it is more expensive by a wide margin it’s still worth it.

We could then be arguing FTTH vs FTTNTTN, extending the nodes with sub nodes. Next will be FTTNTTNTTN, all designed to keep a little copper in the loop so Telstra can charge for it. By 2050 it will only be one inch of copper but you’ll have to pay Telstra $25 a month to use it.

You are forgetting to adjust for inflation. Remember, when stating all figures you must adjust for future inflation, instead of “25 dollars”, by 2050 we will be paying Telstra “80 dollars” in real terms. (because you missed your opportunity to inflate the sound of the numbers you are speaking)

On topic: I thought the cost of 35 billion (or 41 billion in real terms) included the 11 billion dollars (after tax – ps why did he say that?).
or is it something like the cost of the network is estimated by the NBN to be 24-35 billion dollars (with the Telstra deal) + 11 = 36-46 billion dollars with Telstra taken into account…

But you are forgetting, if we keep All Our Eggs In One Basket, or worse yet let the government Pick Winners instead of Letting The Market Decide, then all we will end up doing is 10 years down the track adding a Big New Tax to pay for the capital write-off costs of our White Elephant NBN.

As long as we blindfold our government and throw money at the market, to let it decide on what technology will provide the cheapest, fastest, nastiest solution to Tick All The Boxes of the (so far sparsely defined) coalition telecommunications network, all the while maintaining (?) our healthy Infrastructure Competition.

I don’t know about you, but how can you possibly support this Wasteful Governments, Big New .. err sorry White Elephant when you are in command of all these Cold Hard Facts.

The NBN is the 21st century Snowy Mountains Scheme,not the same as but offering some vision for the future, the possibility of betterment instead of the usual day to day political dirge.I’m sick of hearing about monopoly,the govt. builds the infrastucture,the isp’s flog us plans.We pay,they pay. What’s the problem?

The whole premise of the argument here rests on the NBN being a government monopoly. So how is that any different to the current situation with a Telstra monopoly on infrastructure? I know there other stuff available, but that is simply the pretense of competition, it’s done absolutely squat to bring down the cost to access the infrastructure. The ACCC managed to force the issue a bit, but if there was actually competition to start with it would have been a moot point.

So we get to replace the life expired old stuff with cutting edge new stuff for about the same or slightly more cost? Bring it on!

I had noticed a distinct similarity in posting style, language and wall-of-text-ness. But after bagging RS for so long about using different user names I had assumed our friend would be above such things

It is difficult to demur: Let’s face it, what was the last Government infrastructure finished on time and on budget? Most projects that run over budget involve types of infrastructure where the likely costs, economic drivers and probable operational complications are well understood because of previous experience – the likes of roads, dams, tunnels and major buildings. But the NBN is entirely new in the Australian context; nobody has deployed a large scale fibre to the premises network in established areas. And insofar as there is one relevant point of comparison in South Brisbane, where Telstra is currently building an FTTP network, all publicly available information indicates that it costs a lot more and takes a lot longer than projected.

You are right many infrastructure project run over cost, including many caused by your own government, this is a very weak point as if I followed your reasoning we would never develop critical infrastructure project. I remember the Mandurah train line extension was delayed and cost’s rose but it was still a good idea as it bought great new opportunities to Mandurah to expand their reach.

By this idea you antiquated approach of FTTN will also blow out in terms of costs so you should not build it, road extensions may blow out because of economic factors so we should not do them.

We need to get real about this. When you are committing tens of billions of dollars to replacing the entire existing infrastructure of a vital industry, you cannot be sentimental or self-deluding. There are no fairies at the bottom of the NBN garden to suspend the laws of economics.

Sorry what does this add to your case? Calling the oppositions plan self – deluding shows that the No – alition has earned its entirely respectable reputation (I am personally a swing voters but this behavior cries shenanigans. Also it relation to this and your calls for more funding for the Pacific Highway, why had your government neglected it for decades if it is such a concern? Better question why did the government sell off Telstra as a vertically integrated monopoly? How do you plan to fix this, obviously your previous argument that telstra will do this willingly is untrue.

The NBN is also going to be a monopoly, given other fixed-line infrastructure will either be decommissioned or contractually prohibited from competing. So the only competition for carriage of broadband services will be provided by wireless networks, which in some cases will be a substitute product, but in many will not (as Senator Conroy is so fond of pointing out). The NBN in fixed line terms will be the only game in town.

So let me get this straight the problem is that the NBN fiber rollout will not compete with a hodgepodge ADSL2+/1/HFC/Dial-up combination that we currently have? How exactly can these compete with fibre? If the user base get split between both technologies you in all your economic wisdom should realise that both technologies will cost the consumer more. They both need economies of scale to obtain low prices, so them competing in the Australia marketplace is not best for consumers.

All monopolies will attempt to charge excessive prices (extract economic rent) and so typically they will be the subject of regulation – as in the case of our water, gas and electricity providers. And that will be the case, to some degree, with the NBN which is generously proposing that it will not seek to earn more than the Government’s chosen benchmark of a 7 per cent return on its invested capital.

Indeed what you refer to is known as a natural monopoly. A natural monopoly occurs when it is most efficient to only have one wholesaler of a particular service. For example with water it makes sense that only the water corporation builds pipes rather than having multiple companies fighting over water allocations from dams and building their own pipes to move the water, similar problem with electricity and yes with broadband.

Every enterprise wants to get a good return (ideally a high return) on its invested capital. If it cannot get a reasonable return then it won’t be able to meet its obligations to its lenders or pay dividends to its shareholders. However sometimes people do over-invest – whether it is the toll road that overestimates traffic volumes or the restaurant with an excessively flash fit out.

This is true to a degree every corporations wants to extract maximum profit, that is why letting Telstra do this would really hurt the consumer, they, unlike NBN Co. are not doing this for the social good and purposely limiting themselves to 7% so that they can provide a good service and still meet their repayments.

And if they are operating in a competitive market (if, for instance, motorists can take another route or diners choose another restaurant) they will find that the return they can earn is less than the cost of the capital they have spent, and have to write down the value of that investment. You have to meet the market price that is determined by your competition.

However where a business is a monopoly it is able to exploit its market power and charge much higher prices.

Except that where maintenance of both networks would require massive investments as to need economies of scale to justify commercial rates of return. This is why having a regulated GBE makes sense. It is built to oversee a social priority and to make it possible everyone can be migrated to a superior service with price similar or better to what they are getting, at the very least they are getting a guaranteed service an what they pay for, can you promise the same with xDSL technology?

At the simplest level there is simply more capital earning a return. In its latest review of Telstra’s access charges, the ACCC valued the current Telstra network at just over $17 billion. The NBN’s direct network capital cost is $35 billion in 2010 dollars or $41 billion in real dollars. Its peak funding requirement is higher taking into account the $11 billion (in after-tax 2010 dollars) paid to Telstra to shut down its network and migrate customers and $800 million paid to Optus for similar commitments. Whether these figures are counted as operational expenditure or capital expenditure is irrelevant from a customer’s point of view – any losses they lead to will be counted as recoverable capital, and thus contribute to the eventual level of charges for use of the network.

Assuming your pricing is correct, why have you previously gone on the record to call it a $50 billion investment, I smell a rat.

Also I believe there is a problem with your assumptions here, but I will leave it to those more informed abut finance to explain it. Suffice to say I believe the peak government contribution will be $26.7 billion and this will not be contributed in just one year.

However in Australia, Telstra and Optus are being paid billions NOT to use their HFC networks for broadband or voice precisely so they cannot compete with the NBN. Because the HFC networks were built a long time ago in fairly densely settled areas, Telstra and Optus would be able to offer comparable services and undercut the prices NBN wants to charge for its brand new FTTP network – resulting in NBN having to cut its rates to meet the market. So in order to prevent that happening, billions of dollars of taxes have gone to pay off Telstra and Optus not to compete

The HFC network was built for Pay-TV both optus and Telstra severely regret building these networks as they led to severe losses. Pay – TV takeup in Australia as not large enough as such they had to allow broadband services also to be used on these HFC networks. Furthermore the problem of using HFC as a source of broadband competition is that it has a shared pool of only 400Mbps. This is directly shared among st everyone on that particular network. GPON on the other hand has a shared capacity of 2.5Gbps down, 1.25Gbps up that can be easily upgrade to much more.

However, this begs the question as to whether the level of capital that is being invested is appropriate. In a competitive market a business cannot maintain high prices because it wants to get a particular return on its capital. Its customers will say “that’s your problem” and move onto a cheaper service or product.

The problem with this statement is that is clearly ignore that market failure has occurred. no ISP is willing or even able to invest the amount required to give a reasonable portion of Australia access to ADSL2+ technology. For example my estate was recently constructed < 1 year. Telstra decided to give me access to voice services because of the USO however the best I can get here is ADSL1, but I can not even get that since I believe their insufficient backhaul as such dial – up speed are more common. So in your eyes if it is not commercially viable on its own then I should just suffer?

Furthermore as to pricing current NBN pricing from ISP's calls you out the cheapest Exetel plan being just $35, not bad at all.

This issue of the level of invested capital is a vexed one with regulated utilities. Many people, including Rod Sims (formerly head of IPART in NSW and now chairman of the ACCC) have argued that electricity distributors were encouraged to overinvest in their transmission and distribution networks because they were entitled to charge whatever prices were needed to deliver the return on their investment allowed by regulators – given that regulated return was higher than their cost of borrowings, it gave them an incentive to invest as heavily as they could. Regulators’ ability to declare particular investments as “unreasonable” were usually very limited – and according to Sims, this overinvestment has been the major factor behind the rapid growth in electricity prices.

Fair point, but so the NBN started of at 90% FTTH but after the McKinsey report that recommended that it go to 93% did this actually change. So from the information we have the roll out was actually underinvested. Furthermore how do you decide how much is appropriate? since 100% broadband coverage should be attempted it makes sense that you use one technology until the next technology becomes more effecient and then use the next when that technology can no longer deliver based predominantly on geographical concerns, sound like the NBN right? Since they are going FTTH > Wireless > Satellite.

It would be wrong to assume that any prices so far offered by the NBN Co are sustainable. In its SAU lodged with the ACCC, the NBN Co included a consultant report conducted by Synergies Economic Consulting (available online here) which states:

This contingency has been met by the NBN policy of no price rises for 5 years and a maximum of half of inflation after that, that seem entirely reasonable. As for other services such as multi – casting this is conjecture at best, you have no solid proof.

But if anyone really believes all of the above points to NBN prices for broadband below where they would have been without it, I know someone who could sell them a very nice Bridge with views of the Opera House.

A nice way to finish of your article full of suspicion inaccuracies and downright lies.For your next article can you try answering the following questions from Stephen Conroy?

How will the coalition achieve the structural separation of Telstra?
How much will prices increase in regional Australia without a cross subsidy? How much will his “voucher” system for regional Australia cost?
How many households does Mr Turnbull plan to serve with HFC?
How many households does he plan to serve with FTTN? How many FTTN nodes does he plan to build?
How many households does he plan to serve with wireless?
What does he really think the requirements are for bandwidth in 2020?
When does he expect his network will need to be replaced by FTTH (he calls it a migration path)?
How much will his network cost?
Why does he consisently misrepresent the $35 billion capital cost of the NBN?

With barely 4000 users connected to the NBN after four years of Labor Government, NBN Co yet to report that it has earned revenue from selling broadband services, and completion of the rollout a decade away at best, claims and counterclaims about NBN pricing are at present entirely in the realm of theory. That is as true of the rate cards announced by various ISPs as any other indicator – we all know those rates can change

This to me says “the network is not at a point where we can reliably predict how it perform”, which is a thinly veiled insurance policy for Turnbull, just in case he gets it wrong.

The fact is, as has been pointed out, prices are frozen for the foreseeable future, and more than that, if at any point while both the ADSL2+ and HFC cable networks and NBN operate in tandem, NBNCo cannot, without risking intervention from the ACCC, or worse, the government, raise their prices beyond the level of ADSL2+/HFC. Meaning that prices will be frozen to the same level as ADSL2+/HFC (that does not preclude the idea of raising the prices of ADSL2+/HFC access, however I doubt the ACCC, who regulates LLS and ULL pricing, will modify their pricing regime in this fashion), to at least until the network is completed, at which point the profitability of the network will be completely and readily accessible.

This means an intelligent government can determine, at this point, if the network is unable to pay for itself in full, and allocate a proportion of government funds to fund the difference by writing off the debt in the unlikely event that the network needs a helping hand (which, it is worth pointing out, will be no where near the full amount the network costs).

So with respect Turnbull, you are relying on a lot of things to go wrong here to raise prices. A collection of the following must happen: the NBN pricing has to be allowed by the ACCC to begin exceeding ADSL2+/HFC pricing, the government in charge upon network competition finds that the network cannot pay for itself in reasonable time and the government chooses not to subsidise NBNCo, and the SAU is modified in future to give NBNCo completely free reign over pricing without proper regulation. In all these instances I find it very unlikely, and as for the last point, I have a strong suspicion that the SAU will be tightened in terms of NBNCo’s freedoms when it comes to pricing in light of your criticisms.

This to me says “the network is not at a point where we can reliably predict how it perform”, which is a thinly veiled insurance policy for Turnbull, just in case he gets it wrong.

no, it’s nothing of that sort. Malcolm is just making the obvious point that all the projections and forecasts in NBNco’s business plan are just that… “forecasts”, which are the product of a subjective imagining of the future, and not “reality” or “facts”.

The fact is, as has been pointed out, prices are frozen for the foreseeable future …. NBNCo cannot, without risking intervention from the ACCC, or worse, the government, raise their prices

there is explicit provision within the SAU for NBNco to submit a proposal to vary the wholesale pricing rules at any point in time. fullstop.

at least until the network is completed, at which point the profitability of the network will be completely and readily accessible.

the main network construction was projected to be completed by 2021 in the released business plan. by then, according to NBNco’s own projections, the various profit indicators are just barely turning positive and the revenues have yet to mature. in fact, the business plan states that NBNco will not reach its long term steady state until 2028.

the government in charge upon network competition finds that the network cannot pay for itself in reasonable time and the government chooses not to subsidise NBNCo, and the SAU is modified in future to give NBNCo completely free reign over pricing without proper regulation. In all these instances I find it very unlikely, and as for the last point, I have a strong suspicion that the SAU will be tightened in terms of NBNCo’s freedoms when it comes to pricing in light of your criticisms.

you exaggerate. it’s not necessary to modify the SAU to give NBNco “completely free reign”. there is already an inbuilt mechanism within the SAU which allows NBNco to submit a variation to the wholesale pricing rules at anytime, and the only constraint on pricing is the Long Run Revenue Cap, which basically means NBNco can raise prices as much as it likes as long as it’s not earning more than the WACC on its capital base.

also, think about it. who’s the sole shareholder in NBNco? the Federal Government. who’s underwriting all of NBNco’s debt? the Federal Government. if things go pear-shaped, the Federal Government will have every incentive to back a modification of the SAU to allow NBNco to raise prices and recoup any unexpected losses, as opposed to having to crystallise any losses on the Federal Budget.

specifically, if it’s the tenancy of a Labor Administration, imagine the political loss of face if the Government were to admit that it had bungled the NBN project. more generally, the expedient way out for any Administration is to just let NBNco raise prices than having to find room in the Federal Budget to absorb billions of dollars of losses.

no, it’s nothing of that sort. Malcolm is just making the obvious point that all the projections and forecasts in NBNco’s business plan are just that… “forecasts”, which are the product of a subjective imagining of the future, and not “reality” or “facts”.

Different side, same coin? The point I was making was that any predictions about the network are subject to a certain level of uncertainty. This is an argument for the sake of argument, and I do not appreciate it.

there is explicit provision within the SAU for NBNco to submit a proposal to vary the wholesale pricing rules at any point in time. fullstop.

I find it curious that this statement is in reply to a quote that specially neglects the core point of my argument, to the point of actually removing it from the quote. So I’m going to call this a strawmen and ask you to address the point as it was originally presented, namely the fact that pricing will be, until the completion (or very close to) of the network, pricing will be directly comparable to ADSL2+/HFC pricing, meaning that NBNCo will be extremely reluctant to adjust said pricing.

the main network construction was projected to be completed by 2021 in the released business plan. by then, according to NBNco’s own projections, the various profit indicators are just barely turning positive and the revenues have yet to mature. in fact, the business plan states that NBNco will not reach its long term steady state until 2028.

The network does not need to be in a long term steady state for a government to determine if intervention, in the form of writing off debt, is required. I like the fact you ignored the context of my statement, again to argue for the sake of argument. And since I need to explicitly say things to you, it is worth noting that such a process of debt writing off, if it occurred, would be a long term process over many years until such time as NBNCo can be assured to pay itself off.

you exaggerate. it’s not necessary to modify the SAU to give NBNco “completely free reign”. there is already an inbuilt mechanism within the SAU which allows NBNco to submit a variation to the wholesale pricing rules at anytime, and the only constraint on pricing is the Long Run Revenue Cap, which basically means NBNco can raise prices as much as it likes as long as it’s not earning more than the WACC on its capital base.

Actually it is you who exaggerate. You are aware of the limitations in the current draft of the SAU. You are further aware that I was stating that, although the SAU allows some flexibility in pricing, in order to exceed that flexibility, which I further stated I believe will likely be reduced due in no small part to the complaints presented by Mr Turnbull, NBNCo will face oversight from the ACCC and government.

also, think about it. who’s the sole shareholder in NBNco? the Federal Government. who’s underwriting all of NBNco’s debt? the Federal Government. if things go pear-shaped, the Federal Government will have every incentive to back a modification of the SAU to allow NBNco to raise prices and recoup any unexpected losses, as opposed to having to crystallise any losses on the Federal Budget.

specifically, if it’s the tenancy of a Labor Administration, imagine the political loss of face if the Government were to admit that it had bungled the NBN project. more generally, the expedient way out for any Administration is to just let NBNco raise prices than having to find room in the Federal Budget to absorb billions of dollars of losses.

You are aware that NBNCo is intending to, in future, allow for private investment? Further, even if that plan does not occur, do you seriously think that raising prices is in the government’s best interest considering it will cost them considerable votes to do so? Likely more votes than a crystallising of losses. Finally the assumption that a Labor administration will still be in power around 2020 is questionable at best.

Thanks Malcom Turnbull for your reply. While it was insightful as an alternative view, you addressed some of the possible unseen outcomes. While I certainly dont agree with what you have written here, what we know is fact that NBN Co are mandated to not increase prices over the next 30 years as Renai states below.

“NBN Co has lodged a document with the Australian Competition and Consumer Commission called a ‘Special Access Undertaking’. This document, among many other commitments, states that NBN Co will maintain prices for its key wholesale prices at the current levels for five years. In addition, the company will limit future increases to be less than the rate of inflation for 30 years. In short, in real terms, NBN Co’s wholesale prices will remain fairly stable for the next 30 years.”

Why hasnt this been taken into account? Its all well and good to say that they’ll increase, but we have clear cut evidence here that says they wont.

My disappointment is thus. While I love the fact that Malcom Turnbull replied, what I dont like is the fact that he still hasnt addressed the core issue. What is the coalitions plan? We’re still all in the dark. There’s fairly minimal specifics, even fewer clues and even less actual running figures. What this country wants to see is him provide something thats a credible alternative, other than spin.

NBN Co are mandated to not increase prices over the next 30 years as Renai states below.

that’s a false statement. there is no mandate or directive whatsoever coming from the Shareholder Ministers for NBNco not to raise prices over the next 30 years.

NBNco has proposed a set of wholesale pricing rules which applies for the term of the SAU (which happens to be 30 years). however, there is an explicit provision within the SAU which allows NBNco to submit a variation to the initial wholesale pricing rules proposed AT ANY POINT IN TIME during those 30 years.

people are misinterpreting the fact that the proposed wholesale pricing rules applies for the term of SAU (which happens to be 30 years) to mean that these initial rules cannot be varied at all during those 30 years. this is incorrect.

There will be no competitor for them to compare it against. If the government shows it is losing money and wants to adjust to get back to ROI rates being discussed now, what on earth is stopping the ACCC from agreeing to that? They will sign off on that without blinking.

Mobile wireless is still a competitor (regardless of Renai claiming “complementary” there are only so many consumer dollars around). With LTE and (hopefully) Telstra bringing down prices it will eat out all the light users who won’t bother with NBN fiber.

The greenfield fiber operators are up in arms after waking up to the fact that NBNco is not giving them contracts, and probably wants to undermine their entire business structure. It’s warpath through the courts for those guys and maybe hang in there another two years and negotiate with the Libs. Good luck!

The satellite industry is about to face two new NBN satellites coming into the market — a big shakeup. Renai, please go get an interview with Adrian Ballintine and ask him how he feels about the NBN satellites being so surprisingly similar to his Jabiru-1 and Jabiru-2… and after Newsat went to so much effort to put in a proposal to NBNco and everything. Are they competing for the same orbits? Same spectrum? Could get nasty. Enquiring minds want to know! Pretend you are a buyer who is curious about Jabiru contracts, speak in a posh accent, wear a fake Rolex… I’m sure you know what to do.

Optus fiber and AAPT fiber might be stuck because new legislation is leaving them orphaned. I’m not a legal expert, I think they will get to keep what’s already in the ground, might be hard to run a network when you can’t build. Maybe there’s ways through the legal maze but seems sad for a tech company to pay their lawyers more than their engineers. I guess that’s the main growth industry in Australia. *SIGH*

Well HFC we know is doomed because the contracts are signed, but for some reason Telstra are upgrading anyhow, do they know something I don’t know? Almost certainly they do. They know what the contract looks like for starters.

What’s left, err Telstra fiber you will already find in all the best basements and choicest customers. They ain’t giving that cash cow over. Dunno about additional rollout, another one for the lawyers I guess, hard to believe that Thodey doesn’t have a plan already in place… it would take journalistic genius to make Thodey spill his guts in an interview, so we will never know till it hits us.

So just point-to-point microwave to consider. Well in its current incarnation, perhaps a bit expensive, I’m sure the equipment will come down in price, and if you look at what a Ubiquiti Nanobridge offers for less than $200 the line is in the sand for some extremely competitive products. In a perverse way, NBN fruit-loopery might be the biggest boost for R&D in this area. School kids will be building networks. Good on you, kiddies.

To answer your question… of course the exact definition of a monopoly is a matter of opinion, but from my point of view Telstra is not a monopoly and the comms market is reasonably competitive. As for the NBN, nobody with a grain of sense could consider a company with 4000 customers within a marketplace of millions to be monopoly.

By the way, I believe you have misread (or misunderstood) what Dee wrote, you might want to check it more carefully.

+1. The ACCC has NO reason why to allow prices to increase in the immediate decade. They consistently force Telstra to maintain their current price. For the moment the price is secure. Im not saying it wont change eventually, but NBNCo has provided documentation to say that it wont in the immediate term.

superficially, there appears to be three “independent” parties at play:

1. NBNco 2. ACCC 3. Fed Govt

so, some people seem to be thinking that both the ACCC and the Fed Govt will independently keep NBNco “in check”.

firstly, NBNco is effectively a back office of DBCDE. ferchrissakes, the Fed Govt is the sole shareholder of NBNco and is the sole underwriter of NBNCo’s debt. Mike Quigley was hired by Stephen Conroy, the Shareholder Minister. the Fed Govt has a massive vested interest in protecting the financial interests of NBNco.

the Fed Govt will pick #3 any time. already both S Conroy and P Wong, the Shareholder Ministers are trying to stay quiet and maintain a distance from NBNco. letting a nominally independent GBE raise charges (de facto indirect taxation) will always be less politically damaging than raising Federal taxes or cutting government programmes.

secondly, the ACCC is under the thumb of the Fed Govt. the Fed Govt can ride roughshod over the ACCC by simply passing legislation and issuing ministerial directives. take the $11bln deal between NBNco and Telstra to shutdown all fixed-line competition. there is no way in hell such a deal would have been allowed by the ACCC under the TPA. so, the Fed Govt just passed legislation to push aside the ACCC and tell them to bugger off.

“so, some people seem to be thinking that both the ACCC and the Fed Govt will independently keep NBNco “in check”.

I dont think it will be independant, some might be that stupid, but Im certainly not. What I expect is – that the ACCC will do the job its required to do; and for the most part has – with the current incumbent. Sort it out and make sure it doesnt stifle competition for the most part; by double dipping.

“firstly, NBNco is effectively a back office of DBCDE. ferchrissakes, the Fed Govt is the sole shareholder of NBNco and is the sole underwriter of NBNCo’s debt. Mike Quigley was hired by Stephen Conroy, the Shareholder Minister. the Fed Govt has a massive vested interest in protecting the financial interests of NBNco. ”

I agree, they should be protecting tax dollars. Damn right they should. I want to know my money’s gone to good use. Improving areas that have sweet FA infrastruture, exactly what they’re attempting to do now. But Id rather know that the government runs the joint and at a marginal profit, not the attempts at extortion that Telstra seem to attempt being privately owned.

“The Fed Govt will pick #3 any time. already both S Conroy and P Wong, the Shareholder Ministers are trying to stay quiet and maintain a distance from NBNco. letting a nominally independent GBE raise charges (de facto indirect taxation) will always be less politically damaging than raising Federal taxes or cutting government programmes.”

Mate they’re politicians. They’re all attempting to screw us to one degree or another. Thinking otherwise is madness. Conroy’s been far from quiet, the dudes always on the TV trumpeting some other accomplishment of his, as if he has his own band playing in his head. Letting the ACCC manage inflation of the base service price is a good idea, it works for the most part with telstra AND its clever tactics because the government has a scape goat.

“secondly, the ACCC is under the thumb of the Fed Govt. the Fed Govt can ride roughshod over the ACCC by simply passing legislation and issuing ministerial directives. take the $11bln deal between NBNco and Telstra to shutdown all fixed-line competition. there is no way in hell such a deal would have been allowed by the ACCC under the TPA. so, the Fed Govt just passed legislation to push aside the ACCC and tell them to bugger off.”

The only reason the NBN project was started in the first place was because some guy (John Howard) decided that a Surplus and Competition were better than a Monopoly, a Universal Standard of Service and some debt.
Surpluses are nice, but when you’ve got a demanding market for Broadband growing rapidly – you need to provide the service. I get ADSL1 at 8mbps, barely that most nights. I usually struggle with achieving 1.5mbps. The exchange and RIM here only cover a 10th of the population between 3 suburbs. The Government is doing exactly what should have been done on this issue, controlled baseline infrastructure – competition on services.

Unfortunately, as much as we’d like to smell the roses, private industry doesnt want to cover these areas because the population is small, terrain unfavourable and local council is generally older ministers with little to no technical know-how; so they’d rather say no to expansion and be safe than deal with backlash because people MIGHT “glow in the dark” from mobile phone towers.

The ACCC is a watchdog, not the lawmaker. They will be pushed aside, or told to sit and stay. They will be instructed what to do, thats their job. We need universal infrastruture. Private industry doesnt want it, so Government must cover it. They dont complain when they build roads to nowhere, why would they complain about some fibre cable and some Wifi towers?

PS: I too am willing to pay more for a better connection. I am on the pitiful Landsdale exchange, getting a measly 3-4 mbit on ADSL2+ due to line length. Bring on the NBN! (Oh and BTW, the Landsdale exchange has been bought up in Hansard a number of times and nothing has ever been done for it by EITHER party).

Another thing, if NBN does start to cost more, wireless and other technologies will compete to bring the price down.

Hey Simon, +1 to that mate. I’m in Alexander Heights (just across the Ave from you) and am in the same position.
Cant wait to pay at least $10 a month less than I do at the moment for 10x the speed and 5x the download limits.

I too am willing to pay more for a better connection. I am on the pitiful Landsdale exchange, getting a measly 3-4 mbit on ADSL2+ due to line length. Bring on the NBN! (Oh and BTW, the Landsdale exchange has been bought up in Hansard a number of times and nothing has ever been done for it by EITHER party).

Do you mind me asking where you are, I am in Landsdale also in the new development Corimbia and when we tried to get ADSL that was what we got at best and it tanked to dial-up at 5pm – 1 am.

The reason I ask is Telstra plans to upgrade Backhaul in April, however there are two possible locations this could be, my area or yours (assuming you in the other non backhaul upgrade area). If you are not in Corimbia it is likely the area will be yours as it is more built u p.

PPS: I got a Telstra planning engineer friend to look at my location. Due to my local pillar being full, Telstra had to run my line AWAY from the exchange to the next closest pillar then back to my house.

> They are not prohibited, they just not allowed to mislead their clients into thinking that Wireless is better, faster etc.

For the 50% that NBNCo are predicting will connect at 12/1Mbps (page 118 of NBNCo Corporate Plan), if a person has reasonable 4G coverage, wireless is highly likely to prove cheaper and faster that the 12/1Mbps plan. The quotas will be less, but if you only require 5GB a month adequate.

Exactly. Thanks for that. Those are the lies they are restricted from using. Real world 4G is NOT faster than 12/1. I have many articles on people testing 4G networks around the world. At BEST, sitting almost on the tower they get 10-11Mbit. Average, around 4-5Mbit. Add into the equation peak time loads, drops outs, and it isn’t really a quality alternative.
A work mate is unfortunate enough to live in Pakenham. RIM city. Until he got a port on his local RIM (and now enjoys congested ADSL of an evening) his only option was wireless. Sure, at 3 am he could get 1-2Mb. Of an evening? 5Kb, yes, dialup speed.

One of the glaring obvious things that seems to be missed is that the pricing is WHOLESALE, not retail. The current arrangement with the canberra based company is that you must buy a subscription and engage with an ISP, who will charge you again. The NBN will not be immune to this kind of engagement. As for 4,000 connections, why is it taking so long to roll out? surely with the touting of how good the NBN is, they have the ability to roll out to capital cities first? then regional areas, then remote?

I will stick with my current provider. If the NBN is successful soon, at least it will reduce the bandwidth hogs on my current network.

in a nutshell, the 4000 thing is a furphy. as i understand it 4000 is the premises directly passed by NBNco, but that comes with an additional ~30 thou greenfields premises that Telstra Opticomm etc etc have fibred up but not yet transferred over to NBNco (the BOT portion). so as for ‘why is it taking so long’ – it was always going to be a decade long rollout. but things arent helped when people focus on one subset of the numbers in a way that makes the whole thing look less than it actually is.

id also note that given the outside in preference, i would say that things will appear ‘slow’ when the major portion of the rollout is in sparse rural areas and will look commensurately fast once it reaches dense metro regions. it really is an artifact of where NBNco is at at the moment.

p103 – This has been achieved by keeping the AVC as low as possible in order to encourage consumers up the speed tiers, and relying on CVC revenues to drive ARPU growth.

p116 – Challenge for NBN is to drive ARPU by moving customers up speed tiers

p118 – Despite the movement of residential consumers up the speed curve shown in Exhibit 9.12, the growth in AVC (PIR) ARPU is relatively modest. This reflects the small price differential between AVC tiers, and the decline in prices for the higher tiers. However, the consequence of more End-Users moving to higher speed tiers is reflected in the significant rise in the contribution of the CVC to overall ARPU, as increased speed drives increased usage.

p132 – If the rate at which End-Users are willing to consume bandwidth-hungry products and applications slows down over time, and / or End-Users stop moving through tiers because of price and speed inertia, then there is a risk that the growth in speed and usage will plateau after a number of years. This would limit opportunities to grow ARPU in real terms other than by price increases at that time.
Under these circumstances, speed and usage growth would not be sufficient to generate sufficient real ARPU growth in order to deliver the expected returns.
As mitigation, NBN Co has the flexibility to regularly monitor, and adjust accordingly, the rate at which nominal prices are reduced in order to maintain the revenues in case of lower volumes of demand.

*How will the rise in ARPU happen?*
Prices for actual services will (almost certainly) decline, but at a rate significantly less than the uptake of faster servers / downloading more.

Plans for AVC pricing are outlined on page 101:
– 1000/400Mbps falls from $150 to $90, while the average speed grows from 30Mbps to 230Mbps.
– Price falls by 40% while average speed grows by 760%

Plans for CVC pricing are outlined on page 103:
– Starts at $20Mbps/Month when the average data usage is 30GB/Month and falls to $8Mbps/Month when the average data usage is 540GB/month.
– Price falls by 2.5 times, while the average data usage grows by 18 times = growth in revenue from CVC of 720% when accounting for price falls.

What no one seems to have mentioned is the end-result of the NBN which will provide savings and create efficiencies elsewhere in business.

I work at a hospital providing desktop support. Out team covers a large geographical area which means plenty of trips in the pool cars. A lot of this car travel (and the costs associated with travel itself ) can be eliminated by using remote control. To our major sites, we have good network connections but we look after countless mental health, community and dental health clinics with nothing more than an ADSL connection. Try uploading a service pack on a 1.5Mb/s connection. Of course there will always be times when desk-side support is required but by using an effective and fast remote control, less complex tasks can be achieved meaning more jobs get closed meaning less reliance on man power and car-use. This will ultimately save money for our health care provider.

1) A monopoly will always over charge
2) Introducing competitors will force prices down

Point (1) is easily taken care of if the ACCC and the Government do their jobs. The fact that the media will turn it into a massive issue if they don’t makes a failure unlikely.

So, if high prices exist, then those are then necessary prices to pay off the infrastructure.

Yes, this may result in higher end-user prices than what *some* city users pay right now, but rural users may still see huge price drops. It is critically important to note that lowering prices was never the only goal – and it is silly to act like the sky is falling because *some* users *may* pay more, even though it appears that many will pay less and *all* will get a much better service.

As for competitors, the main problem with (2) is the failure to recognise a natural monopoly situation. In such situations, the most efficient solution is to have a single provider.

If competitors are introduced (and they somehow charge less while earning a higher return), then NBNCo would either have to:

(a) Raise prices (!!!) in the areas where the competitor doesn’t provide a service. This is possibly unsustainable, and obviously many end users suffer.
(b) Write down the value of their assets and reduce prices.

The problem with (b) is that the shareholder (the Government) and therefore the taxpayers will suffer.

This may be hard for many to accept, but competition is not a golden hammer.

Competition can drive innovation (like we have seen with smartphones over the last decade) but for an infrastructure provider, there is little room for it. The main priority is to pay off the high capital costs.

Introducing a competitor raises capital costs. If capital costs were low to start with (consider that $1 million spent developing a new smartphone could get split between a million customers) then prices can be lowered by simply accepting a smaller profit margin, or innovating to bring down operational costs. That simply does not happen with infrastructure, which is why we have natural monopolies.

The Coalition’s position on this is just a massive strawman – split up and misrepresent Labor’s goals (100Mbps to 90% at affordable prices) as simply “lower prices” and point out the obvious (capital expenditure may result in higher prices). When convenient, misrepresent their goals as “faster broadband” and claim there are other ways to do it. Throw in some misleading numbers to make it sound like the “other ways” produce similar results anyway.

I see no problem with most of Tunbull’s comments. He’s right that NBN is a subsidised network as it has to be regulated so retailers can match current broadband pricing to entice customers to buy into NBN plans. The only flaw in Turnbull’s argument is increased prices over time by overcapitalising and keeping the same RIO %. This largely depends if the project runs on budget, however I doubt the government is going to increase capital in the network. I imagine if the project is in danger of running massively over budget then surely the government of the day would scale it down, rather than inject more capital.

Remember that laying fibre is forecast to cost $12 billion in 2010 terms, compared to a similar cost to build DSLAM cabinets in plague proportions. It simply doesn’t make sense to go backwards like this when the cost is the same.

The 1990s Telstra-Optus HFC will be at physical end-of life in 2020, which is when it would be decommissioned in favour of its logical replacement, i.e. optical fibre to premises.

And Parliamentary oversight of NBN pricing is a far better insurance policy against price gouging than corporate boardroom profit-seeking.

The coalition faces an almost identical scenario for the 2013 election as in 2010. A government on the nose, but holding a winning card to deliver the best comms infrastructure for our future, and to do it off-budget. Unless the coalition catches up and adopts the NBN, it is likely they will again see key regional seats lost, and lose another unloseable election.

What people are deliberately forgetting isps like iinet/ internode will make competition harder on the nbn, by trying to block competitors like optus and telstra to offer cheaper prices for the consumer.

they will complain that they will be losing profits while optus and telstra can afford to lose a particular margin.

While Mr Turnbull might deny the value of the NBN most of his regional coalition colleagues seem to want the NBN to reach their electorate before it gets cancelled.
Not all areas have the luxury of ADSL2 and we already know that not all ADSL users are equal in terms of service delivered.

There is a great of short term economics being used of late to ‘prove’ the NBN is a wasteful white elephant. Turnbull likes to claim everything is too expensive. So is his vision, over time.

FTTN will require physical infrastructure upgrades at some point. Not if. When. It’s wasteful rebuild for no advantage. How much would FTTH + FTTN cost over the next decade?

Argue the semantics all you like, Turnbull’s option is to spend (less) tax on a scheme that will have no return, of which the majority will got to Telstra. It’s under-investment. Primarily aimed at Telstra. Par for the course.

Meanwhile, Telstra will then be free to take the debacle that has been QLD fibre rollouts and, virtually unencumbered, with a fresh investment from the government, take that into a broader rollout.

Leaving a large bunch of people stuck on copper. That is inexorably rotting to nothing.

Actual events are outpacing theoretical claims from Turnbull. Competition in the market, and pressure from those retailing the NBN, has already had an effect on NBN plan construction and contracts.

So the whole “honeymoon” period, whereby the NBNco will suddenly hike prices, is fanciful. NBNco is after growth; sure, they might rattle the cage a bit, but ultimately they need ISPs to be on board; and as we have seen, more than once, they will accomodate change – and not just after a competition notice, either.

When you compare that to Telstra’s behaviour over the last decade? Up to and including yet another ACCC investigation into pricing? You tell me.

I have believed for many years, naively perhaps, that the role of an opposition is to present a credible alternative to governing, but I have once again been proven wrong. You would think that before attacking a policy or a program, an opposition would be better served by presenting a detailed alternative proposal. Once both policies have been presented and debated, then voters would have a chance to decide which is best for them or the nation as a whole.

Instead, what we have here, is an attack based on poor analogies, speculation and convenient oversights and no detailed alternative. Why is it so Malcom Turnbull? Isn’t your policy good enough (or thought through enough) to show how inadequate the NBN is? Surely, if you had a better solution, it would become evident to most of us. Prove me wrong. Don’t be a poor salesman. Don’t waste your time bagging the opposition, sell your product on its merits. If it is better, most of us should be smart enough to see it.

Pointless argument of Malcolm’s. Pay more, get more. Happened from dialup to ADSL, happening again with ADSL to fibre. If I can be freed from being forced to pay for a phone line I don’t want just to get a broadband service I do, then I’m happy to pay more for broadband. As to the govt monopoly vs free enterprise, it was the incumbent infrastructure monopolist that decided pair gain was good enough for me, then reusing ADSL1 equipment being replaced elsewhere with ADSL2 because that was good enough, and this after a number of years of waiting for TCW to decide that there was a business case to warrant it (even with the infrastructure monopoly). To say free enterprise is the answer, when to get free enterprise to accomplish what we have now required pouring in large amounts of public funding, is a prime example of being blinkered by ideology. Those of us in regional areas have always suffered under free market ideology.

frankly I don’t know enough to say whether Mr Turnbull is right or not. quite possibly he’s just playing politics about the nbn.
but those keyboard warriors you talk about, it’s the same here as Whirlpool. it’s always the same individuals blanketposting and repeating the same stuff over and over again adnauseum like a broken record. and from what they reveal it’s likely 99% of them are living in small regional towns or stranded out of the way in poorly served estates (maybe RIM).
I would say from the Libs point of view they can safely ignore these tiny irrelevant group of vocal forum whingers because most people living in metropol areas with access to TPG unlimited for $50 really couldn’t care less and aren’t gonna vote for Labor just because for fiber. that’s my guess anyway

The last thing you should be doing it attacking the “Fairies at the bottom of the garden”, since they’re the only ones who would build the infrastructure competition you constantly promote for your alternate Clayton’s policy.

Telecommunications companies had two decades to invest in their own infrastructure. Only one company did so -Optus-, and they lost half-a-billion dollars in the attempt, stopping with only 20% of the population covered. They have since stated that they wouldn’t repeat the mistake.

As a regional internet customer, I don’t understand this concept of competition. Thus far, the greatest competition we have experienced is the offer of fibre to the home versus fixed wireless. Even then, the choice is not highly competitive.

You dont understand competition as a regional customer for one simple reason; We get Shafted. Im 60 minutes from brisbane and get no competitive choice other than the Incumbent or iiNode (only some resellers not others) – the resellers are just reselling telstra plans anyway!

Would that change with the Coalition? Shit no, they’d rather keep some of telstra and shaft us again.

At least with the NBN we have half-a-chance to get something other than bugger all.

Apparently these people with all these Internet “Choices” like to make decisions for everyone else. They’re covered, why should they give a rats about the rest of us?

I used to be on a pair gain system in a new estate and I moved, I’ve gone from RIM to RIM ever since, I’m finally now about an hour away from Brisbane and managed to get onto ADSL1, but as this is also a new estate, the exchange ran out of ports and the newer half of the estate is out of luck. Worse still, before the exchange was ‘upgraded’, it was horribly congested to the point that prime time meant dialup time.

Considering that these problems are the same in new estates all across the country (explained to a non-tech friend in Perth who had the exact same problem last year for example), perhaps there might, just might be a big problem here, that we can’t just keep moving away from or pretending it doesn’t exist.

There’s a lot of rhetoric in there Malcolm, but not much relevant, factual information.

Pricing fallacies:
First, because the NBN is limited to a ~7% return, it puts it in a far better place than any private sector alternative to deliver low prices. Even if that private sector investment was of much lower value, such as your mooted FTTN network. Given their expectation to earn 15 or 20% return, the NBN can comfortably invest double the amount of the private sector, and still deliver lower retail prices.

As such, your “alternative” can either deliver NBN-level services at a higher price than the NBN, or it can deliver inferior-to-NBN level services for NBN level prices. It cannot do both.

The next major fallacy is that your alternative policy won’t itself be a monopoly. Rubbish.

Monopoly/Competition fallacies:
Any FTTN network must make use of the”last mile” of Telstra copper lines. So at the very least, the “last mile” will be a monopoly under your policy. In reality, it will be much more than the “last mile”. To achieve the sort of speeds you’ve been touting from BT’s FTTN rollout (80Mbps, 400m copper loop), it has been estimated that you’d need to build around 80,000 nodes. In order for your “monopoly” to be limited to the copper loop, that would mean 80,000 Points of Interconnect. Obviously a ridiculous number. So that would mean a monopoly fibre backhaul network to a smaller number of PoI.

Hey presto, doesn’t that sound a lot like the NBN’s degree of competition? A monopoly from premises to PoI, then competition from there on?

As for HFC….Considering there isn’t a single HFC network in the World with retail-level competition, I think it unlikely that would happen here, for both technical and business reasons.

You also fail to tell readers that the NBN is strictly prohibited from profiteering. They are simply not allowed to make more than a ~7% return. In your alternate policy, would you impose such a restriction on the private sector, or would you allow them to gouge profits from consumers through higher retail pricing?

Factual errors re the NBN:
You said: NBN also has made no commitments about its pricing of more sophisticated services such as multicast video”
This is incorrect. Check the corporate plan, and you’ll see it lists pricing of $2.50 per megabit at the PoI level and $5 for a 20Mbps Multicast AVC at the user level, with $5 per 10Mbps extra.

You said: NBN Co has applied to the regulator for permission to raise nominal prices by 50 per cent of the rate of inflation, per year. But note this restriction only applies to access – unlike current wholesale pricing, NBN Co will also be charging usage fees (via its CVC).
Both these statements are incorrect.

The NBN has applied to raise prices by a maximum of 50% CPI pa. That’s a worst-case scenario, not an every-year guarantee. They have also proposed zero price increase for the first 5 years. These limits also apply to the CVC charge.

At the very worst, NBN pricing will fall every year in real terms by CPI for the first 5 years, and 50%CPI for the next 25 years.

Oh, and Telstra most certainly do charge CVC pricing for their wholesale ADSL services. That’s why the vast majority of us who get their ADSL via Telstra wholesale pay ridiculous prices for small download quotas.

I may be a little behind here, but from my information it may well have been you who single handily, brought to everyone’s attention and most importantly made it official (we all knew, but the critics would never admit it) that there is an actual anti, non-factual, propagandist NBN campaign, being waged in parts of the media.

The Gillard government will lose the next election (or she will get kicked out early) and we will be left with another 30% complete network like the Telstra/Optus HFC network. This country is useless. 22 million people and the only thing that distinguishes us from a 3rd world country is our natural resources. Oh and the fact a sizeable portion of the population of Australia are public sycophants and politicians.

Mr Turnbull you say this. “However in Australia, Telstra and Optus are being paid billions NOT to use their HFC networks for broadband or voice precisely so they cannot compete with the NBN. Because the HFC networks were built a long time ago in fairly densely settled areas, Telstra and Optus would be able to offer comparable services and undercut the prices NBN wants to charge for its brand new FTTP network – resulting in NBN having to cut its rates to meet the market. So in order to prevent that happening, billions of dollars of taxes have gone to pay off Telstra and Optus not to compete.”

Telstra and Optus will only compete in the densely populated areas. That leaves the more sparsely populated areas high and dry with an expensive broadband service. I know it is ideologically unacceptable to you to have the common good spread over the whole population, yes sounds like socialism. But to me it is the fairest and over all cheapest way.

“In recent weeks Malcolm Turnbull has been engaged in a somewhat unseemly online dispute with an Internet website and its band of pro-NBN followers who are targeting him over what they allege are his inaccurate claims that the NBN will cause broadband prices to rise. They point to the initial round of NBN retail offers which suggest the opposite. Unfortunately the debate proceeds from a simplistic and unmeaningful premise.
NBN Co’s own corporate plan demonstrates that this effect will increase NBN ARPUs from $23 next year to $32 in 2015 and $52 by 2020.” Grahame Lynch

The bit I am interested in is this.
“NBN Co’s own corporate plan demonstrates that this effect will increase NBN ARPUs from $23 next year to $32 in 2015 and $52 by 2020”
I am not aware of where he is getting this from. If it is as obvious as he seems to make out all argument on NBN prices becoming more expensive would be ended, they would. I have a feeling they are not obvious and employ similar calculations to Malcolm, the price can rise so it will and ignore and restraints on pricing that are in place.
If it is so obviously in the plan why didn’t Malcolm point it out? Why didn’t GL give references instead of just putting up the final calculations. I think most people here IF given an accurate argument as to why prices will rise will accept that they will. Most aren’t here to be pro NBN fanbois, just object to the FUD. If it’s true, it’s true, but expect to have to show it and not just sprout a pile of weasel words.

Malcolm – if one NBN costs $37B to build, won’t two NBNs cost $74B? These competitors will have to share the same 11M subscribers. So they’ll have to charge wice as much or take twice as long to get a return on that investment. The reality is that some things are more cost effective as monopolies. We just need to ensure we don’t make the same mistakes as we did with the electricity networks.

Its good to see Mr Turnbull put his case here and I too would vote for the Liberal guy in my area if he was the leader of the Libs in parliament. But under Abbott he has been given the wrong story to tell. The cost of the build is always high in his reasons to modify the NBN plan to a NTTN. But as a good lawyer presenting his case, he neglects to mention the other side of costs for retaining/maintaining the copper network and the HFC network. And the revenue gained when the Telstra and Optus customers are transferred onto the NBN. We only ever hear of the gross payments for these new customers, not the net cost or net gain. The copper and HFC were reaching the end of life but these networks hailed as good as ever in the minds of anti NBNers. It seems under the his plan, we would have a bit of fibre (the bit laid before they get elected), a bit of HFC on two networks side by side each other and the good old copper network. I do not think this would be good for economic or network efficiency, points he is always talking about.

As a lawyer Malcom is very good at dancing around the hypothesised problems of the NBN and given excellent obiter dicta. Unfortunately, there are no pearls of wisdom to extract from this very long response. Given Malcom’s unwillingness to attack the NBN head-on this leaves me to suppose that, overall, its a pretty good project.

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